By John Maggs, National Journal
© National Journal Group Inc.
Friday, July 11, 2003

One aspect of every president's legacy is all but overlooked in the history books -- his impact on the form and function of the government. Ronald Reagan confronted the Soviet Union, helped revive the economy, and left a huge budget deficit. The debate continues about the nature of his achievements. Yet probably Reagan's greatest legacy to Washington and its leading industry is represented at the intersection of 12th Street and Constitution Avenue. The building still bears the name of the Interstate Commerce Commission, but its cavernous offices are now filled with a hodgepodge of other agencies. It once housed one of the most powerful and sprawling parts of the government, but the ICC doesn't exist anymore. The agency fell to Reagan's sweeping deregulation program, which also cut back government oversight of airlines, petroleum, telecommunications, antitrust, health and safety, shipping, and international trade. Reagan didn't close down as many agencies as he had promised to, but his commitment to deregulation changed the Washington landscape more than did the huge new federal building that bears his name.

President Bush wants to remake the bureaucracy so that government workers routinely vie with private contractors for their jobs.

The early money says that George W. Bush's primary legacy to the federal government will be his creation of the Department of Homeland Security, the largest reorganization of government resources in 50 years. Even though the government's top law enforcement agency, the FBI, was left out, and even though the department's pieces won't become an effective whole for many years, the stitching together of the Homeland Security Department is reshaping Washington -- again.

But in a decade or two, the verdict on Bush's legacy to government might well be a little different. Not because the creation of Homeland Security will seem less important, but because another Bush initiative promises to remake the government in even more fundamental ways. The president's radical aim is to eventually make upwards of 850,000 federal workers -- nearly half of the civilian workforce now protected by bureaucratic tradition and civil service rules -- compete against private contractors for their jobs every three to five years. So far, Bush has demanded that 425,000 face competition in the next few years, but he's also said that number won't be a ceiling for his administration. The administration seeks both to reduce the federal workforce by hundreds of thousands of workers and to force half of the government to justify why it should even be part of the government.

Related Stories More At Stake For Military · The State Experience · An Evolving Civil Service Related Resources On NationalJournal.com Q&A With Michele Forney: "Rumsfeld's Corporate Pentagon" · Book Review: "Government's Greatest Achievements: From Civil Rights to Homeland Security" · Book Review: "You Don't Always Get What You Pay For: The Economics of Privatization" · Jan. 7, 2000, National Journal Cover Story: "Government's End" · Aug. 10, 2000, Government Executive Story: "Defense Reform Savings Overstated" Additional Information On The Web Government Executive On Outsourcing And A-76 · Reason Magazine Article On Public-Private Competition For Government Contracts · Reason Foundation Web Site On Competitive Sourcing · White House Site On Bush's Management Agenda · Department Of Energy Site On Competitive Sourcing · General Accounting Office Report On Competitive Sourcing And The "New Circular A-76" (PDF)

Past administrations' attempts to control the growth of government have been piecemeal -- defunding programs, or consolidating or eliminating agencies. Almost all have foundered on Capitol Hill, where committee chairmen derive power from the size of the bureaucracies they oversee. Significantly, Bush can put his plan into place through policy changes, without a moment of debate in Congress.

Lawmakers are obviously concerned -- with most, but not all, of the dissent coming from the Democratic side of the aisle. A group of House Democrats has attached a rider to an appropriations bill to stop the competitive bidding process at the Interior Department, presenting Bush with a potential veto dilemma. In the Senate, the confirmation of Clay Johnson as deputy director for management at the Office of Management and Budget was held up for five months over senators' objections to the administration's use of numerical goals to increase the number of employees competing for their jobs.

Federal employee unions are also fighting the changes. Last month, the union representing Treasury Department employees filed a lawsuit seeking to invalidate recent regulatory changes that the union says will be used to vastly increase the number of federal jobs slated for competition. Colleen Kelley, president of the National Treasury Employees Union, said the Bush administration wants to whittle down the number of workers whose jobs are off-limits to competition and privatization. In particular, she said, the White House has targeted the perennially unpopular Internal Revenue Service.

Some critics say the idea of competition is simply a ruse, arguing that the administration fully intends to shift as many of those 850,000 jobs as possible to the private sector. Kelley charges that the White House will use a regulatory "streamlining" process to deprive employees of due process in evaluating whether their jobs should be opened up to competition.

Back To Business School
To learn more about the Bush initiative, go to a Web site created by the White House, www.results.gov. It's the home page for something called the President's Management Agenda, a five-part plan for improving management in government. The agenda was the baby of Mitchell E. Daniels Jr., the recently departed director of OMB.

Every president proposes some kind of plan (or sometimes several plans) to improve the day-to-day running of the executive branch, but it is fair to say that Bush's agenda is more ambitious than most. The plan unmistakably bears the imprint of the first president to hold an M.B.A. The management agenda contains a lot of meat, but it is also replete with business school jargon. Government employees are "human capital," and just about everyone gets to be a "strategic partner." There is "knowledge management," which is somehow distinct from "information management," and then there is something called "results-oriented performance management."

The language is a giveaway that the Bush team is trying to transplant into government successful ideas from the business world, an effort that almost every administration makes -- and then abandons when the bureaucracy fights back. But all signs show that this administration is more committed to these reforms than others have been, and that its goals are more ambitious. Under one of the management agenda initiatives, "Budget and Performance Integration," the administration has proposed to strip funding from agencies if they don't perform a particular service well. The "Improving Financial Performance" initiative calls for more-frequent and more-thorough financial audits, and requires agencies to improve their performance from audit to audit.

Some parts of the management agenda are a little fluffy -- "human capital transformation" seems to involve techniques such as mentoring and performance bonuses that have been tried before. But the overall approach is to regularly and unflinchingly grade performance on the five initiatives, and then broadcast those results on a multicolored "scorecard" that reports whether a department or agency is succeeding (green), losing ground (yellow), or failing (red). To see how the various parts of the executive branch are doing as of June 30, check the Web site. The White House isn't pulling punches -- most are getting failing grades in most areas.

The management agenda is not really revolutionary, but one of the five initiatives -- "Competitive Sourcing" -- potentially is. It takes another tried-and-true idea from the business world: designating some in-house work for "contracting out" or "outsourcing," and inviting outside companies to compete for it. Outsourcing has been one of the great revolutions in business over the last few decades. It has enabled corporations to slim down workforces that had swelled to cover all of the tasks a company needed done, and has led to huge gains in productivity. Think of IBM 25 years ago, with employees making every piece of every computer, from the microprocessor to the plastic housing. Now think of Dell Computer, which doesn't make a single component of its products, but is the leading supplier of computers in the country.

Competitive sourcing is a refinement of outsourcing, because it lets government employees and managers compete to keep the work that is being offered to the private sector. As something of a gimmick, OMB demonstrated how this would work at the one time of year when Washington is paying a lot of attention to the budget office -- in February, when OMB released the administration's proposed budget. Months before, OMB had quietly organized a competition for printing the multivolume budget, and helped workers at the Government Printing Office put together their own bid. The GPO won, and the result was a 23 percent savings in printing costs over the year before, which the GPO achieved by using fewer workers, working fewer hours, to print the budget -- in other words, figuring out how to get the work done more productively.

OMB officials say that competition lowers the cost of government services by more than 30 percent when a private contractor wins the bid and by more than 20 percent when government workers win. But these numbers are based on a single study by the Center for Naval Analyses that looked at 16 of the 550 competitions held by the Pentagon since 1955. By any standard, this seems an inadequate basis for assuming that government can achieve similar levels of savings across the board.

Even tougher to assess is whether moving many functions of government into the private sector comes with other, less-quantifiable costs. Charles Goodsell, author of The Case for Bureaucracy, said the Bush initiative seems inspired by a conviction that most government bureaucrats are inefficient, and inferior to private-sector workers. The problem with contracting out, he said, is that once employees lose a competition, they are reassigned to other jobs, and their expertise is lost to the government forever.

Reviving An Old Idea
So is this idea of using competitive sourcing in the federal government really so new and revolutionary? Not exactly. As it happens, it is based on a policy that was adopted in 1955 by what was then the Bureau of the Budget. Before President Eisenhower started worrying about military contractors' influence on the government, he promulgated a simple principle intended to help control the growth of government: If a service is commercially available, the government should buy it instead of hiring someone to perform it and thus competing with the private sector. Circular A-76, as it was called, has been broadened several times over the years and assumed its current form in 1983.

But bureaucrats, aided by their patrons on Capitol Hill, by government employee unions, and even sometimes by top political appointees, prevented most government departments and agencies from ever taking A-76 seriously. A-76 competitions took place almost exclusively at the Pentagon, where the self-contained nature of the armed services and of military-base life had contributed to a pattern in which Defense Department personnel performed many tasks for which they were obviously ill-suited. Since 2000, the Pentagon has used A-76 to bid out services provided by 72,000 federal workers.

The Clinton administration made some late efforts to reinvigorate the competitive process, but ardent opposition by federal employee unions and Democrats in Congress stalled the attempts. In 1998, the Republican-controlled Congress passed the Federal Activities Inventory Reform Act, which for the first time called for every federal agency to count its jobs that are "commercial" in nature, distinguishing them from jobs deemed "inherently governmental." The legislation could have been a takeoff point for competitive sourcing, but after Clinton signed it into law, his administration did nothing with the information that was collected. Morley Winograd, who directed Clinton's "Reinventing Government" initiative, said that the data on savings from competitive sourcing was "flawed" and that the law, and Circular A-76 before it, did a poor job of distinguishing between the kind of work that could be outsourced and the kind that shouldn't be.

As a presidential candidate, Bush embraced the idea of using the FAIR Act to effect a government-wide move toward competition. Once elected, he settled on a goal of holding competitions for half of the 850,000 federal jobs now deemed commercial in nature, out of a full-time civilian workforce of 1.8 million. Then he set a shorter-term goal of designating a government-wide average of 15 percent of "commercial" jobs for competition by the end of 2003. That explicit goal led to the hold on Clay Johnson's nomination. Lawmakers assumed that the administration would require every executive branch body to meet the 15 percent goal, but OMB officials insist that that will not be the case.

In a related move, earlier this year the administration revamped A-76. At the urging of government employee unions, it closed some loopholes that had been used to privatize jobs without competitions, but it also narrowed the definition of "inherently governmental" jobs that can be protected from competition. The effect won't be clear till next year, but Kelley of the Treasury employees' union says the new rules could greatly increase the number of "commercially available" jobs in the federal workforce.

The administration insists that the new rules are not intended to force privatization and instead are designed to strengthen government by making it more useful. "We don't care who wins the competition," said Angela Styles, administrator of the Office of Federal Procurement Policy at OMB. "What matters is that everyone competes and that the taxpayers get the service performed in the most efficient way." Styles pointed out that at the Pentagon, government workers have won 60 percent of the competitions.

Styles and other OMB officials meet with representatives of all the departments and agencies to discuss their progress in achieving the competitive-sourcing goals. In another bow to a business practice in vogue, department officials sign a contract embracing agreed-upon goals for increasing employee competition.

Singularly Focused
Styles has been a patient overseer. She conceded that Competitive Sourcing will fall far short of the government-wide goal of 15 percent in 2003, and even admitted that only a handful of departments or agencies would meet that mark. She said she'd like to get to 15 percent by next summer, but her tone indicated that she isn't betting her house on it.

But the administration might just be taking a strategic pause in its march to inject competition into government. Talk to the officials responsible for implementing the sourcing initiative, and you get a portrait of OMB as singularly focused on getting to that 50 percent goal. At the Education Department, for example, about 1,000 out of its 5,000 jobs have been designated as commercial in nature. Competitions for 25 percent of those 1,000 jobs will be completed by September 1, according to Bill Leidinger, assistant secretary for management. That's better than the 20 percent goal that Education pledged to reach last year, and way ahead of the government-wide standard of 15 percent -- but that hasn't satisfied Styles. For its achievement in competitive sourcing, Education earned an upgrade from red to yellow on its management scorecard. What will it take to get to green? "I think we're not going to get green until we're at 50 percent," said Leidinger.

Leidinger noted that the competitions involve Education Department employees from human resources and payment processing, two categories of government jobs that are often designated for competition. That is also the case at the Energy Department, where 1,180 jobs are slated for competitions, about 18 percent of its commercial inventory of 6,600, according to Dennis O'Brien, director of the office of competitive sourcing. Most departments and agencies are organizing competitions bureau by bureau, but Energy is planning to put jobs up for department-wide competition, something that has OMB officials pretty interested. "At DOD, it would be like holding a competition across all the different services," said Jack Kalavritinos, OMB's associate administrator for competitive sourcing.

Despite union leaders' fears, department and agency officials appear to be helping employees compete effectively for their jobs. In fact, the time and resources devoted to these efforts make one wonder if any real savings will result. In most cases, outside consultants are helping employees prepare their bids, and employees are putting aside their regular work to participate in the competitions. Leidinger said the Education Department had spent about $1.5 million on procurement consultants from Booz Allen Hamilton. Employees worked full-time on their bids for about a month, he said, and their normal responsibilities were farmed out to others. Leidinger acknowledged that operations might have suffered a little, but said, "We're doing something really groundbreaking here, and we're going to be fair to our employees and do it the best that we can."

At least one prominent critic of the administration wonders whether the competitive-sourcing initiative will really reduce the size of government, even if it achieves all its aims. Paul Light of the Brookings Institution has long argued that contracting out for services merely hides the true size of government. One example is the Agency for International Development, where a Republican attack on the agency in the late 1990s coincided with a surge in demand for new specialists to help in the transition to democracy in Eastern Europe. Faced with a freeze on new hires, but with ample money to assist the former Eastern Bloc, USAID hired hundreds of outside contractors. Many departments and agencies are doing the same, to avoid attention-getting increases in their headcounts of full-time employees. Light says that competition can lower costs for some services, but that merely shifting jobs from government employees to private contractors does nothing to limit the size or reach of government.

And what if competitive sourcing creates a new class of special interests that will eventually subvert any efficiencies gained from competition? OMB officials point out that most competitive-sourcing contracts are won by small and medium-sized businesses, but it is not hard to imagine a giant accounting firm (like, say, Booz Allen) sewing up contracts for most of those financial jobs heading for competition.

Styles and the other competitive-sourcing officials have to walk a fine line between competing interests, showing a benign and reassuring face to federal employees and their supporters while maintaining the drive and focus to push forward such a fundamental change in government. Styles is well aware that slipping timetables are one of the first signs of a loss of political will for reform, but she says she is sustained by the commitment to reform she perceives at the top.

"Let me tell you, to the very highest levels, this administration is committed to this idea. And I know personally that no one is more committed than the president."

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